Brisbane Resources Round-up day two delegates were told Australia’s metallurgical coal sector is far from dead in the water with market strength driven by robust steel demand from China, India and Japan.
S&P Global Market Intelligence senior research analyst Richard Foy said this demand, which accounted for 70% of Australia’s metallurgical coal demand in 2017, would contribute some stability to seaborne prices.
He explained in his presentation, ‘The Australian Metallurgical Coal Industry’, that after the downturn, the industry had recovered strongly despite anti-coal sentiment.
“About 60% of the world’s seaborne metallurgical coal comes out of Australia and we expect to see annual production increase from 182 million tonnes in 2018 to 195 million tonnes by 2022.
“This is due primarily to the ongoing price recovery encouraging greenfield and brownfield developments.”
The projected increase would come from brownfield developments and incoming greenfield projects.
There are 70 companies with display stands in the exhibition hall.
Average coal share prices up 30%
Austex Mining Pty Ltd executive director Rob Murdoch also spoke of the sector’s strength during an overview of the resources market.
He said average share prices of most resources sectors were down with the exception of energy, including coal, oil & gas and uranium, along with bulk commodities of iron ore, HMS and bauxite.
“We have a two-speed market with the oil & gas and coal sectors booming while uranium is picking up but the other sectors are in decline.”
Coal had been a very strong performer, Murdoch said, with average share prices up 30%.
S&P analyst Foy said that during the downturn declining prices caused Australian miners to focus on low-cost production.
“Higher-cost assets were suspended or shut down, capital expenditure was cut back and operations were streamlined.
"The decline in prices since 2011 forced Australia’s coal miners to make significant cost savings to preserve margins.”
Increased coal requirements
Since then, he said, growing and sustained steel demand from primary markets, alongside pollution cuts in China, had driven increased coal requirements for Australian coal products.
Earnings for Australia's metallurgical coal mines were up more than 53%.
“The recovery in prices since 2015 has also seen a concurrent increase in costs largely from rising oil prices and appreciation in the Australian dollar.”
Delegates keen to learn more about DGR Global.
In forecasting future trends, Foy said modest cost inflation was expected at Australian metallurgical coal mines in 2018 with normalised production costs stabilising and declining by 2% from 2018 to 2022.
This was attributable to economies of scale with upcoming new operations and expansions, along with the consensus forecasts expecting the Australian dollar to weaken against the US dollar.
He said stable steel producer margins would incentivise continued growth in capital expenditure throughout the steel supply chain.
Potential risk to supply
Foy warned of a potential risk to supply with stronger thermal coal prices likely to encourage swing producers to switch metallurgical coal products to a premium thermal product.
“The challenge for Australian suppliers is to raise production in a cost-effective manner that does not oversupply the market.”
In conclusion, he said, “Looking forward, we expect costs to stabilise.
“If the prices follow the consensus forecasts for coking coal, high-cost Australian operations could come under pressure to exit the market due to negative margins in 2020.”